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Gold Shows Why Discipline Is Crucial

On December 15th, 2015, we published an article, called “Gold Ready for a Post-FED Explosion?”. The FED was about to raise interest rates on the very next day, December 16th, so it was clear that an increase in volatility was going to occur. So, we applied the Elliott Wave Principle in an attempt to predict the direction the price of gold(XAUUSD) was most likely to take after the news. Two equally probable wave counts came to mind, both of which bullish. One of them is given on the chart below.
gold 15.12.15
As visible, the 30-minute chart of gold was showing a 5-3 wave cycle, pointing to the north. According to the theory, five-wave impulses shows the direction of the larger trend. That is why we thought gold should rally. However, the 61.8% Fibonacci level is only a guideline, which means wave (2) could extend even lower before the bulls return. Holding above the invalidation level of 1046 was the only condition for the bullish outlook to stay on the table. In other words, “as long as the invalidation level of 1046 holds, targets above 1090 remain valid.” What happened next? The hourly chart of gold shows how things went.
gold 8.1.16
Well, there was no post-FED explosion. In fact, gold fell to as low as 1047.70 on December 17th. Nevertheless, 1047.70 is higher than 1046.00 so the bullish count was still alive. Soon after that, gold started rising. Timid at first, the bulls were slowly gaining confidence. Confidence, which turned into courage on January 6th, 2016, when our first target of 1090 was finally reached. And if this was not enough, the rally continued to 1112.80 as of January 7th.
We have to admit there was no sharpness in that forecast, since the precious metal was not expected to plunge below 1050. But it did and that is fine, because the Wave Principle had given us a specific price level, which, if breached, would have confirmed we were wrong. Fortunately, it was never breached. Gold gave us a great lesson about how important discipline could be in trading. Because discipline was all that was needed to turn this ugly price action into a profitable trade 20 days later.
In conclusion, things will not always go as smoothly as you want. That is why you need a plan. And the discipline to stick to your plan, when the situation is not looking so good. In the end of the day, your self-discipline, or the lack of it, could make the difference between profit and loss.



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